Traders work on the floor of the New York Stock Exchange. / Richard Drew, AP

by Rachel Huggins, USA TODAY

by Rachel Huggins, USA TODAY

Stocks rallied Thursday as positive reports on the U.S. job market and retail sales helped overcome concern about a sharp drop in Japanese stocks.

The Dow Jones industrial average jumped 180.85 points, or 1.2%, to 15,176.08, coming off three straight days of losses that pushed the blue-chip index back below 15,000. On Wednesday, the Dow fell 0.8% to close at 14,995.23, capping off it's first three-day losing streak of the year.

The Standard & Poor's 500 index gained 23.84 points, or 1.5%, to 1,636.36, and the Nasdaq composite index gained 44.94, or 1.3%, to 3,445.37. The S&P 500 fell 0.49% Wednesday to 1,602.00 and the Nasdaq dropped 1.06% to 3,400.43.

"What we're seeing this week is a battle" between two opposing themes, said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

On one side, there are worries over what will happen when the Federal Reserve and other central banks pump less money into the financial system. On the other side, there's rising optimism for the U.S. economic recovery, even as Europe and Japan falter.

"The underlying fundamentals of our economy are clearly doing much better," McMillan said.

The latest positive news came early Thursday when the government said the number of Americans seeking unemployment benefits fell to 334,000, below what economists had expected. Jim O'Sullivan, chief U.S. economist at High Frequency Economics, wrote in a note to clients that the government's weekly numbers, while volatile, "continue to signal an improving labor market."

The government also reported that U.S. retail sales increased 0.6% in May from April. That's up from a 0.1% gain in April and the fastest pace since February.

In the U.S. government bond market, the yield on the 10-year Treasury note slipped to 2.18% from 2.23% late Wednesday.

In April, the Bank of Japan announced a massive stimulus in an attempt to get inflation up to 2%. The euphoria that drove the Nikkei up to five-year highs has since dissipated and the index is now in bear market territory, dropping 20% from its recent peak.